It appears that Northern Rock really have hit ‘rock bottom’, with news published that Bank of England has leant Northern Rock a massive £23billion.

It is almost as though we, the British tax payer, are in fact lending Northern Rock the money as the Treasury are the ones who are indemnifying the credit.  That’s £730 each, that we are giving to a mortgage provider, who are struggling to hold their heads above water.

The queues have dispersed and the ‘retail run’ has ended, but now they are experiencing a different kind of run, where they stand to lose a lot more money.

Quite famously, three quarters of Northern Rock’s funding came from wholesale markets through bonds and from finance provided by banks and financial institutions.  As the loans for these repayments have now fallen overdue and these financial institutions are demanding their money bank.  Northern Rock have found it virtually impossible to roll over these sums or find funds from other commercial sources because of the risks attached, so Northern Rock have had to tap into the Bank of England as a resource.  But how long can this go on?

The money that Northern Rock have borrowed is costing them.  It is not cheap.  And this is making a big dent on the Rock’s profits.  In addition, the three main bidders for the Rock can’t afford to take on the loans unless there is an iron-clad guarantee in place, that Government backed loans will stay in place.  As if the £23b wasn’t enough, there is also a further £20b of indemnities against deposits that the Treasury has endorsed, which means that there is in fact £40b public sector exposure to the Rock.  This is roughly 3 per cent of our entire economy.

At this stage, Northern Rock are heavily immersed in crisis and were in talks with the FSA, Bank of England and the Treasury to see whether this predicament warranted a full government enquiry.  The saga continues…

As the Bank of England put up interest rates last week, there has been a rush for fixed rate remortgages the Financial Times reports.

Interest rates are expected to rise again this year so it makes fixed rate remortgages even more appealing to buyers.

Buyers are taking the opportunity to lock into fixed-rate mortgages with favorable rates, ranging from a low of 4.95 per cent to about 5.1 per cent depending on the number of years of the contract.

Customers are trying to beat mortgage lenders before they adjust their rate tables’ inline with the higher interest.

Variable-rate mortgage holders have been hit by a third rate rise since last August while fixed-rate mortgages have not been effected.

Economists expect the interest rate rise on mortgages could see the housing market stabilize as buyers become more cautious. The interest rate rise caught everyone by surprise and will make homes even less affordable.

Neil Chegwidden, head of research at Cluttons, cut his forecast for 2007 house price growth from 9 per cent to 2 percent.